Ch. 3 Memorandum and Articles of Association and its Alteration: PYQ Decoder

June 2025Q. 1(b)3 marksSyllabus 2022

Show the facts common to all parts of Q. 1

Case Study :

Sourav, Soumyadip, Sucharita and Sohini are four directors of Supershine Detergents Ltd. They decided to convene a meeting on 20th February, 2025 to discuss, consider and solve some issues the company is facing in the corporate secretarial compliances since few days. As there is no qualified Company Secretary at present in the company, they invited you, as a practising Company Secretary in the meeting, to take you valued views on the divergent issues and move forward accordingly.

Sohini started the dicussion stating that five hundred equity shares of the company are presently held jointly by Dhiman, Bobby and Sam–their names appearing in the share certificates in this order. The joint shareholders want a transposition of the names in the order Sam, Dhiman and Bobby for in respect of three hundred shares. Sohini requested the members of the Board to analyse the if this is feasible.

Sourav updated the board members that the promoters of the company want to incorporate a company in the name and style of Rimjhim Tourism Corporation Ltd. in a scenic hilly town in the state of Uttar Pradesh. The proposed new company would deal with a different line of business. The new company after some years would become a subsidiary of Supershine Detergents Ltd. This strategic decision will increase the brand value of the Group. Sourav invited comments from his co-directors and asked you to examine the matter.

Sucharita mentioned that Vinod, an MBA (Finance) who is a member of the company for ten years wants to inspect the Register of deposits maintained by the company as required under the provisions of the Companies Act, 2013 and rules made thereunder. The secretarial officer of the company has refused to show the register for inspection, as Vinod did not divulge the reasons for inspection. She requested the other directors to look into the matter. Soumyadip brought to the notice of his board colleagues that Srishti, proprietor of S. Nagori and Associates, Chartered Accountants, is holding the office of statutory auditor of the company since 2019-20. The Audit committee is very happy with the performance of the auditor. The firm has also expressed its willingness to continue as statutory auditor for FY 2024-25. Soumyadip tabled the following figures from the audited financial statements of the company for year ended 31st March, 2024 :

Items	₹ in crores
Paid-up share capital	6
Turnover	35
Borrowings from financial institutions	60
Net worth	70

Soumyadip urged the other board members to examine the matter and take decision. Before conclusion of the meeting all the four directors jointly raised the topic of creation of charge on assets of the company for the loan taken from State Bank of India for ₹ 4 Crore for the purchase of raw materials keeping security of company immovable property.

They maintained their understanding that copy of every instrument evidencing any creation of charge is required to be filed with Registrar of Companies. However, the board members are confused over certain aspect of the matter and sought clarity on the matter.

Based on the above facts and integrated case, referring to the provisions of Companies Act, 2013, answer the following :

(b)Can a company be incorporated in the name and style of Rimjhim Tourism Corporation Ltd under the Companies Act, 2013 ? You being a practicing Company Secretary, examine.

Read in the manual: S.4

December 2020Q. 3A(iii)4 marksOld syllabusOR, alternative to Q. 3

(iii)Shyam Agarwal wants to incorporate a company in the name and style of Raghav Forest Corporation Ltd. in the state of Himachal Pradesh. Can a company be incorporated with the said name? Referring to the provisions of the Companies Act, 2013 and you being a practicing Company Secretary, advise the promoters.

Read in the manual: S.4

December 2020Q. 1(d)5 marksOld syllabus

Comment on the following:

(d)The Articles of Association may contain provisions for entrenchment.

Read in the manual: S.5

December 2019Q. 2A(ii)4 marksOld syllabusOR, alternative to Q. 2

(ii)Discuss the provisions applicable to signing of Memorandum of Association of a company where the subscriber is :

(a)illiterate;

(b)a Limited Liability Partnership.

Read in the manual: S.7

(a)Section 7(1) of the Companies Act, 2013 read with Rule 13(2) of Companies (Incorporation) Rules, 2014 provides that:
Where a subscriber to the memorandum is illiterate, he shall affix his thumb impression or mark which shall be described as such by the person, writing for him, who shall place the name of the subscriber against or below the mark and authenticate it by his own signature and he shall also write against the name of the subscriber, the number of shares taken by him.
The type written or printed particulars of the subscribers and witnesses shall be allowed as if it is written by the subscriber and witness respectively so long as the subscriber and the witness as the case may be appends his or her signature or thumb impression, as the case may be. Such person shall also read and explain the contents of the memorandum and articles of association to the subscriber and make an endorsement to that effect on the memorandum and articles of association.
(b)In case where the subscriber to the memorandum is a body corporate, the memorandum and articles of association shall be signed by director, officer or employee of the body corporate duly authorized in this behalf by a resolution of the board of directors of the body corporate and where the subscriber is a Limited Liability Partnership, it shall be signed by a partner of the Limited Liability Partnership, duly authorized by a resolution approved by all the partners of the Limited Liability Partnership:
Provided that in either case, the person so authorized shall not, at the same time, be a subscriber to the memorandum and articles of Association.
Further, this Subscriber sheet along with MOA & AOA is required to be attached to the E-form SPICe (INC-32) being filed for incorporation of the company, except when e-MOA (INC-33) and e-AoA (INC-34) are required to be filed in certain specified conditions under the digital signatures of each subscriber.
The introduction of e-MOA and e-AOA has made hand written subscriber sheet as irrelevant in current date.
Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 2A(ii) (Old syllabus).

June 2024Q. 1(e)3 marksSyllabus 2022

Show the facts common to all parts of Q. 1

Case Study

Manoranjan, a young Journalist and MBA with flair for writing started a small net-based business of content writing in the year 2011 by the name–Nirbheek Contents. Initially, his business focused on website copywriting and business blog writing. Riding the wave of sourcing work from India by western countries, his business grew quite rapidly.

Having taken the business to the highest level his focus shifted from writing contents himself to have a team to write content. He personally monitored them to ensure quality. In the year 2016, he formed a media company namely (MTR) Ltd. in Delhi and had a team of fifty persons who were working with him on regular basis.

With the initiative of Manoranjan being very ambitious and positive about his business MTR Ltd. expanded the business by entering into the business of printing books, journals, exporting printed material to the foreign clients etc. After few years the Board decided for demerging its both business where MTR Limited (MTR or ‘‘Demerged Company’’) shall remain engaged in media business and a new company i.e., ATR Limited (ATR or ‘‘Resulting Company’’) which was formed will engage in the printing business.

The Board of Directors of MTR & ATR approved the scheme of arrangement in their respective meetings. Accordingly, the complete printing business, as a going concern of the demerged entity, was required to be transferred including its assets and liabilities which belong to the printing business of the demerged company to the resulting company. However, the immovable properties were excluded from the deal.

A meeting of members of MTR Limited was convened under the order of the Hon’ble NCLT to consider a scheme of compromise and arrangement. Notice of the meeting was sent in the prescribed manner to all the 1200 members holding in the aggregate 1,00,00,000 shares. The meeting was attended by 900 members holding 60,00,000 shares. 420 members holding 44,00,000 shares voted in favor of thc scheme. 360 members holding 12,00,000 shares voted against the scheme. The remaining members abstained from voting.

A group of creditors of MTR Limited was against the ongoing scheme of arrangement and they made a complaint to the concerned Registrar of Companies (the Registrar) alleging that the management of the company has indulged in destruction and falsification of the accounting records of the company and proposed scheme is not in the interest of the unsecured creditors.

The registered office of ATR Ltd. is presently situated in the premises of MTR Ltd. However, in order to have a separate registered office for corporate business ATR Ltd. hired the premises in the same city where its registered office will be shifted after complying with the legal formalities.

XYZ Limited, an associate company of MTR Limited, has a paid-up capital of ₹ 460 lakhs and accumulated free reserves of ₹ 740 lakhs. Loss for the year ending 31st march, 2023 is ₹ 74 lakhs.

Dividend was declared at the following rates during the three years immediately preceding to the year 2022-23 :

Year 1	10%
Year 2	12%
Year 3	14%

Based on the above information and referring to the provisions of the Companies Act, 2013 answer the following :

(e)Referring to the provisions of the Companies Act, 2013 explain the managing director of ATR Ltd. the formalities to be completed before and after shifting of the registered office clarifying whether the approval of members of the company through a special resolution is required for it.

Read in the manual: S.12

December 2023Q. 1(b)5 marksSyllabus 2022

Show the facts common to all parts of Q. 1

Case Study :

Anil, Sunil and Vaishali are close friends from a renowned business family. After doing their masters from IIM, Ahmadabad they decided to start e-commerce in commodities. However, they were not sure about the legal format in which they should start the business. On request, M/s AB & Associates, a firm of practicing Company Secretaries advised them to form a company limited by shares being the best suitable device for running the business. After complying with the legal formalities, the company in the name and style of ‘‘Dynamic E-Commerce Ltd.’’ (hereinafter referred to as ‘‘the Company’’) was incorporated on 1st April, 2020 by seven subscribers (including Anil, Sunil and Vaishali) to the Memorandum and Articles of Association of the Company with the main object of carrying e-commerce in grains, grocery, and medicines throughout India.

The registered office of the company is situated in Pune, the State of Maharashtra (India).

The capital clause of the Memorandum of Association (MOA) provides as under :

‘‘The authorised share capital of the company shall be ₹1,00,00,000’’

The Articles of Association (AOA) contain the capital clause as below :

‘‘The authorised share capital of the company shall be ₹1,00,00,000 divided into 8,00,000 equity shares, carrying voting rights pari-passu of ₹10 each and 20,000 preference shares of ₹10 each."

The company offered preference shares to the financial institution, its promoters, and a group of individuals on which rate of dividend shall be 10% as per the term of issue. The financial institution refused to subscribe to the issue of preference shares on the contention that MOA is ambiguous as it does not authorise the company to issue class of preference share and hence the act of offering preference shares is ultra vires the company.

Considering the growing business, the company wants to shift its registered office from Pune to Mumbai in the State of Maharashtra (India). The Managing Director of the company has been apprised by the Legal Officer that the company may shift its registered office, as proposed, by passing a unanimous board resolution and filing necessary forms with the Registrar of Companies.

Encouraged with the financial results of last three years the Board of directors of the company intends to declare interim dividend for the first time in its next board meeting to be held on 31st May, 2023 out of the profit earned for the year 2022-23.

The balances extracted from the financial statement for the preceding year are as below :

Particulars	Financial Results for theyear ending 31st March, 2023 (₹ in lakh)
Net Profit for the year after depreciation but before interest and tax (NPBIT)	80.00
Charge of Interest on the profit on term loan	5.00
Fully Paid-up equity share capital	60.00
Fully Paid-up Preference share capital	16.00
Free Reserves	10.00
Term Loan	50.00
Contingent Liabilities for which profit is to be set aside	24.65

Assume Income-tax provision @ 25%

Based on the above facts answer the following :

(b)Referring to the provisions of the Companies Act, 2013 advise the company of the compliance requirement for shifting of its registered office from Pune to Mumbai.

Read in the manual: S.12

In the instant case the change in registered office of the company shall be within the same state but from the jurisdiction of ROC, Pune to the jurisdiction of ROC, Mumbai.
As per section 12(5) of the Companies Act, 2013 read with rule 28 of the Companies (Incorporation) Rules, 2014, no company shall change the place of its registered office from the jurisdiction of one Registrar to the jurisdiction of another Registrar within the same State unless such change is confirmed by the Regional Director on an application made in this behalf by the company. {Proviso to Section 12(5)}
Thereafter, the Regional Director shall examine the application and the application may be put up for orders without hearing and the order either approving or rejecting the application shall be passed within fifteen days of the receipt of application complete in all respects. The certified copy of order of the Regional Director, approving the alternation of memorandum for transfer of registered office company within the same State, shall be filed in Form No.INC-28 along with fee with the Registrar of State within thirty days from the date of receipt of certified copy of the order.
Under rule 28 of the Companies (Incorporation) Rules 2014, application shall be made to the Regional Director in Form No.INC.23 along with the fee and following documents shall be furnished:
(a)Board Resolution for shifting of registered office;
(b)Special Resolution of the members of the company approving the shifting of registered office;
(c)a declaration given by the Key Managerial Personnel or any two directors authorized by the Board, that the company has not defaulted in payment of dues to its workmen and has either the consent of its creditors for the proposed shifting or has made necessary provision for the payment thereof;
(d)a declaration not to seek change in the jurisdiction of the Court where cases for prosecution are pending;
(e)acknowledged copy of intimation to the Chief Secretary of the state as to the proposed shifting and that the employees’ interest is not adversely affected consequent to proposed shifting.
Accordingly, the company may shift its registered office from Pune to Mumbai only after passing Board resolution and a special resolution in the general meeting, obtaining confirmation order of the Regional Director and complying with the other procedural requirements. Hence, the advice of the legal officer is not correct.
As per rule 12(6) the confirmation referred to in sub-section (5) shall be communicated within a period of thirty days from the date of receipt of application by the Regional Director to the company and the company shall file the confirmation with the Registrar within a period of sixty days of the date of confirmation who shall register the same and certify the registration within a period of thirty days from the date of filing of such confirmation.
Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 1(b) (Syllabus 2022).

June 2026Q. 1(a)3 marksSyllabus 2022

Show the facts common to all parts of Q. 1

Case Study :

Background :

Swash Infra Limited, incorporated in 2021 under the provisions of Companies Act 2013 is presently engaged solely in infrastructure-related activities in line with its existing object clause. The company has built a strong market presence through high-quality products and robust post-sale services, resulting in consistent profits since inception. This operational success and evolving strategic outlook form the basis for the issues discussed in the subsequent paragraphs.

I.Name Change

Given its profitable operations, expanding business aspirations and also with the advice of one of the renowned astrologers the board of the directors of the company decided to change its name to reflect a broader business outlook.

The company passed a special resolution and filed an application with the Registrar of Companies (ROC) on 25 May 2026 for approval of a change in its name to Swaarna

Infra & Realty Limited. During examination of the application, the ROC noted that the company had not filed its annual return for FY 2024-25 in Form MGT-7, although the financial statements for the same year had been filed. The directors remain confident that the application will be approved.

II.Future Projects

Despite being profitable in the infrastructure sector, the promoters intend to diversify into the Renewable Energy Infrastructure business after three years. They have already developed certain intellectual properties for the proposed venture and also wish to purchase land now for use in the future project. However, the existing object clause of Swash Infra Limited does not permit such activities or holding assets relating to the renewable energy sector, and the promoters do not wish to alter the object clause at this stage. They also confirm that no accounting transaction or business activity relating to the proposed project will be undertaken at present and till the projects become operational. The promoters, however want the intellectual property and the proposed land to be held under a corporate structure rather than in their personal names and therefore seek advice from the Practising Company Secretary (PCS) on how this may be achieved without altering the existing object clause.

III.Status as a Listed Company

The Board of Directors is considering issuing non-convertible redeemable preference shares (NCRPS) to augment financial resources. During preliminary discussions, the Company Secretary suggested that the company could list the proposed issue of NCRPS on the National Stock Exchange of lndia (NSE). The Board seeks a legal opinion from the PCS on whether such a listing would confer the status of a “listed company”.

IV.Threat of a Trade Union

A recognised trade union of the company is on strike, alleging unfair labour practices, including non-payment of bonus despite high profits. A workman of the union has created a video disk containing material that the company considers could be potentially defamatory and has also threatened to release it on social media. The Managing Director has instructed the Company Secretary to explore the possibility of obtaining legal measures to restrain the union and workmen from releasing the video.

V.CARO 2020

For the financial year ending 31st March 2026, the statutory auditor submitted the Companies (Auditor’s Report) Order, 2020 (CARO 2020) report. In relation to physical verification of inventory, the auditor noted that :

•The management has not conducted physical verification of inventory at reasonable intervals.

•No proper treatment of discrepancies of 10% or more has been made by the company.

The auditor did not provide any explanation for these observations. The Board seeks clarification on the applicability of CARO 2020 to the company and whether the auditor’s report complies with the reporting requirements, particularly in the light of the remarks on inventory verification.

Based on the information provided above and with reference to the provisions of the Companies Act, 2013 and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, answer the following :

(a)Analyse the situation and advise the directors on the appropriate course of action to obtain approval for the change of name.

Read in the manual: S.13

December 2024Q. 1(a)3 marksSyllabus 2022

Show the facts common to all parts of Q. 1

Case Study :

Background :

Lalit, Bisen, Roma, Raunak, and Rasik, a practicing company secretary, have formed a brainstorming group to discuss, deliberate, and resolve various issues they encounter in their daily works related to company law. They decided to meet every Sundary evening to share their views on issues brought before the group. Several meetings have taken place, and the important issues discussed in detail are outlined below :

(i)Change in the name of the company and issues connected therewith : Lalit began the discussion by informing the group that his client, Roopam Leathers Limited (the Company), changed its name to Rakshak Leathers Limited in January 2024, following the due process of law. Before this change, the company had filed a suit against one of its suppliers in May 2023 to recover compensation due to a breach of contract. However, in April 2024, the supplier applied to the Court for dismissal of the suit, arguing that Roopam Leathers Limited ceased to exist after the name change and the issuance of a new certificate of incorporation by the Registrar. The Managing Director of the Company has expressed concern about the fate of the litigation against the supplier.

(ii)Employees Stock Option Scheme (ESOP/Scheme) : Bisen mentioned that his client, JK Aluminium Limited, is planning a public issue of equity shares and intends to offer options to the directors, officers, or employees of the company under an ESOP. The CFO of the company expressed doubt about whether all employees, directors, and independent directors are eligible for share allotment under this scheme. He also questioned whether the vesting period can be set at 2 years and if a lock-in period of five years can be provided in the scheme.

(iii)Books of Account in respect of Branch Office : Roma stated that she has been appointed as the Secretarial Auditor of Janak Textile Limited, which has its registered office in Chennai, India, and a branch office in California, USA. While conducting the secretarial audit for the financial year 2023-24, she noticed that one director of the company had requested financial information beyond the financial returns maintained at the registered office concerning the branch office. However, his request was denied by the Board, which contended that a director can only inspect the summarized quarterly returns sent by the branch office to the registered office. She asked the other group members to analyse the situation.

(iv)Dormant status of the company by ROC : Raunak brought up the issue of a dormant company for discussion. He said that his client MM Consultancy Ltd. (the company) received a notice from the Registrar of Companies (the ROC/Registrar) for entering its name in the register maintained for dormant companies. Upon reviewing the company’s records, he found that it had not filed its financial statements for two consecutive financial years and an annual return for the preceding financial year i.e. for only one year. He requested the group to discuss and deliberate on this situation, particularly in light of the Managing Director’s concern about the validity of the Registrar’s notice, and sought clarification on the provisions governing the status of a dormant company at the Registrar’s behest

(v)Inviting deposits from public by a government company : Rasik mentioned that he is a legal advisor to MNO Corporation Ltd; a government company. The balances extracted from the latest audited financial statements of the company are as follows :

Sr. No.	Particulars	Rs. in crore
1	Paid-up equity share capital	10
2	Free Reserves	4
3	Securities Premium Account	2
4	Turnover	300

The company proposes to invite deposits of Rs. 4 crore from public. He analysed the proposal and observed that the deposit amount is within the prescribed statutory limit. He then invited comments from the other group members on the proposal.

Based on the above scenarios, analyse the issues, and provide legal opinions on each case, sequentially, in accordance with the provisions of the Companies Act, 2013, as detailed below :

(a)Explain the effect of the change in the company’s name and advise the Managing Director on whether the Supplier’s application for dismissal of the case is tenable.

Read in the manual: S.13

December 2023Q. 4(b)5 marksSyllabus 2022

(b)Ankur Steel Limited is a manufacturer of stainless steel. It had raised ₹400 crores through public issue of its equity shares for starting one more unit of steel manufacturing in Odisha. It has utilized ₹100 crores. Due to reduction in customs duty on import of steel, imported steel from China are cheaper than its own manufacturing. Since there is no scope for growth and expansion in the existing business, management of the Company thought of utilizing remaining amount in software development business (including Artificial Intelligence) by adding a new object in the Company’s its mernorandum of association.

As per the provisions of the Companies Act, 2013 can it do so ? If no, what advise will you give to the company ? If yes, then explain the various steps to be followed by the company.

Read in the manual: S.13 S.27

December 2021Q. 2A(i)4 marksOld syllabusOR, alternative to Q. 2

(i)Growing Ltd., a start up company with a total member base of 170 is thinking of an alteration in the objects clause to include new businesses holding potential in present times. Directors have convened a general meeting to take shareholders’ consent on this matter. In light of the relevant provisions of the Companies Act, help the directors to decide the right course of action.

Read in the manual: S.13 S.110 S.117

According to section 13(1) of the Companies Act, 2013, a company may, by a special resolution and after complying with the procedure specified in this section, alter the provisions of its memorandum. It means that a company can change its objects by passing a special resolution. As per section 13(9) of the Act, the Registrar shall register any alteration of the memorandum with respect to the objects of the company and certify the registration within a period of thirty days from the date of filing of the special resolution in accordance with section 13(6)(a).

STEPS FOR ALTERATION IN OBJECT CLAUSE OF MEMORANDUM OF ASSOCIATION:

STEP - I - Convene a Board Meeting by giving 7 days advance notice as per section 173 and SS-1.

STEP - II - Hold the Board Meeting:

•To pass the Board Resolution for approving the proposed amendments to the objects clause of MOA of the company subject to the approval of shareholders in General meeting.

•To fix day, date, time and venue for holding the general meeting of the Company for passing a special resolution as required by section 13 and to approve the draft notice of general meeting along with explanatory statement annexed to the notice as per requirement of the Section 102.

STEP- III : Issue Notice of General Meeting: (Section 101)

Send notice of the General meeting proposing the aforementioned special resolution to all the shareholders, directors, auditors and other persons entitled to receive it, by giving not less than clear 21 days’ notice or shorter notice.

STEP-IV : Hold General Meeting: (Section 101)

Hold a shareholders meeting on the date for the meeting and pass the Special Resolution for altering the object clause of Memorandum of Association by 3/4th majority in accordance with Section 114 (2) of the Act.

After passing special resolution, file a certified copy of special resolution with the Registrar in form MGT- 14 under Section 117 of the Act within 30 days of passing Special Resolution.

The Process of alteration of the Object Clause shall be completed only when the alteration is registered by the ROC and a certificate to that effect is issued by the ROC.

Source⁠‌‌‌‌⁠: ICSI Guideline Answers, December 2021, Q. 2A(i) (Old syllabus).

June 2019Q. 5(a)4 marksSyllabus 2017

(a)Pluto Ltd. was incorporated on 10th June, 2013 in Delhi and is engaged in the business of providing specialized catering services for corporate events. The Board of directors proposed to venture into event management services, which requires the alteration of the object clause of the Memorandum of Association of the company. Draft the necessary resolution assuming relevant data.

Read in the manual: S.13

December 2025Q. 1(e)3 marksSyllabus 2022

Show the facts common to all parts of Q. 1

Case Study :

Five close school friends Deepanjan, Prosenjit, Srabani, Chandranath and Lipika having brilliant academic record completed thirty years of service in their respective organisations and after retirement decided to do something together which they were all passionate about throughout their life. With this motive they incorporated a private limited company in June, 2017 named Advanced Engineering Advisory Solutions Private Ltd. (AEASPL) to provide engineering advisory services to entities operating in fertiliser and chemical industry. The registered office of the company is situated in Pune.

In order to expand the operations, they gradually converted the private limited company into public limited company in May, 2021. As on date there are six directors of which Deepanjan is Executive Director and Srabani the Managing Director. Lipika has been appointed as Chief Executive Officer in last year. In February, 2023 the company purchased seventy percent equity shares of Bright Technologies Private Ltd. (BTPL), a Hyderabad based company, which had substantial market share in providing consulting engineering services and was recording consistent good profits for last few years.

You have been appointed as a Company Secretary in the company two months ago. Ahead of the board meeting in December, 2025, Deepanjan, Srabani and Lipika has placed the following case situations before you for noting, perusal and advice.

Case I : The company AEASPL has 10% preference share capital shown in its balance sheet. The company defaulted in repayment of interest on term loan taken from DHFC Bank (the Bank) though the principal part was duly paid in time. The Bank directed the company not to pay dividend to the shareholders including the preference shareholders. Due to such communication from the Bank the company failed to distribute the dividend on preference shares within the statutory time limit.

Case II : The company had closed its register of members in May, August and October in the year 2025 for twelve, ten and fifteen days respectively for corporate actions. The Board of Directors is considering closing the register in December, 2015 for another fourteen days for issue of bonus shares.

Case III : AEASPL has received a request from Jagdish, one of the legal representatives of a deceased member Jishu for transmission of 500 equity shares. In the meanwhile, Jesmine, spouse of Jishu, being a joint holder of shares along with Jishu also approached the company for transmission of those 500 equity shares in her favour.

Case IV : Deepanjan updated his colleagues that BCD Co., a LLP of Audit Firm is the present statutory auditor of Bright Technologies Private Ltd. (BTPL). The audit fee charged by them is Rs.85,000. The Board of Directors of AEASPL resolved to assign investment advisory services to BCD & Co. at a fee of Rs. 50,000. Pulak, a secretarial advisor of the company objected to this resolution stating it is invalid.

Case V : The shareholders of AEASPL had passed a special resolution in their meeting held on 29th August, 2025 altering its articles of association empowering the directors to require any shareholder who is doing competing business with the company’s business to transfer his shares as directed by the Board. Pradip, a shareholder carrying on a competing business, challenged the validity of the alteration of articles.

Based on the above information and referring to the provisions of the Companies Act, 2013 answer the following :

(e)As regards to Case V, decide, whether Pradip will succeed in challenging the amendment in articles of association of the company.

Read in the manual: S.14

December 2021Q. 1(d)5 marksOld syllabus

Comment on the following statements :

(d)Contracts made before the incorporation of the company cannot bind the company.

The above statement is partially correct.
Although a contract made before the company's incorporation cannot bind the company, it is not wholly denied of legal effect. It takes effect as a personal contract with the persons who purport to contract on the company's behalf and they are liable to pay damages for failure to perform the promises made in the company's name, even though the contract expressly provides that only the company's paid-up capital shall be answerable for performance.
Preliminary contracts are contracts purported to be made on behalf of a company before its incorporation. Before incorporation, a company is non-existent and has no capacity to contract. Consequently, nobody can contract as agent on its behalf because an act which cannot be done by the principal himself cannot be done by him through an agent. Hence, a contract by a promoter purporting to act on behalf of a company prior to its incorporation never binds the company because at the time the contract was concluded the company was not in existence. Therefore, it has no legal existence. Even if the parties act on the contract it will not bind the company. [Northumberland Avenue Hotel Co., (1886) 33 Ch.D. 16 (CA)]. Further even after incorporation such a purported contract cannot be ratified by the company [Kelner v. Baxter (1866) L.R. 2C.P. 174]. The persons purporting to act as agents on behalf of the company would be personally liable.
Even if the company takes some benefit from a contract purported to have been made before its formation, the contract is not binding on the company. The promoters alone, therefore, remain personally liable for any contract they purport to make on behalf of the company, unless the company enters into the contract in terms of such agreement after incorporation. A company cannot ratify a pre-incorporation contract, but it is open to it to enter into a new co its incorporation to give effect to a contract made before its formation [Howard v. Patent Ivory Co. (1888) 38 Ch.D]. Since the pre-incorporation contract is a nullity, even the company cannot sue the vendor of property if he fails to carry out such a contract.
In India, however, Sections 15 and 19 of the Specific Relief Act, 1963 have considerably alleviated the difficulty. Section 15(h) provides that where the promoters of a company have, before its incorporation, entered into a contract for the purposes of the company, and such contract is warranted by the terms of incorporation, the company may, if it has accepted the contract, and has communicated such acceptance to the other party to the contract, obtain specific performance of the contract. Under Section 19(e) under similar circumstances, specific performance may be enforced against the company by the other party to the contract.
Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 1(d) (Old syllabus).

December 2019Q. 3A(iv)4 marksOld syllabusOR, alternative to Q. 3

(iv)Deepak promoted and incorporated Clever Ltd. in January, 2019. He sold 25 acres of land in the State of Punjab, which he had acquired in his name in January, 2017 to Clever Ltd. in March, 2019. He made a profit of ₹2 crore on the above transaction. Is the transaction legal ? Will your answer be different, if Deepak acquired the said property in his name during February, 2019 ?

Also relevant to this chapter